Basis of presentation and going concern

12 Months Ended

Dec. 31, 2011

Basis of presentation and going concern

2. Basis of presentation and going concern

These consolidated financial statements include (1) Synergy (including Synergy’s wholly-owned subsidiaries, Synergy-DE, Synergy Advanced Pharmaceuticals, Inc. and IgX, Ltd (Ireland—inactive)) and (2) Callisto Research Labs, LLC (“LLC”—inactive). Callisto owned 41% of Synergy which, together with common executive officers and certain directors, is deemed a controlling interest. The net assets and losses attributable to the Synergy shares not owned by Callisto have been reported as “non-controlling interest” on the Company’s balance sheet and statement of operations. These consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission (“SEC”) and United States generally accepted accounting principles (“GAAP”). All intercompany balances and transactions have been eliminated.

As of December 31, 2011, Callisto had an accumulated deficit during development stage of $142,366,313. Callisto expects to incur significant and increasing operating losses for the next several years as Callisto expands its research and development, continues clinical trials of plecanatide for the treatment of GI disorders, acquires or licenses technologies, advances other product candidates into clinical development, seeks regulatory approval and, if FDA approval is received, commercializes products. Because of the numerous risks and uncertainties associated with product development efforts, Callisto is unable to predict the extent of any future losses or when Callisto will become profitable, if at all.

Net cash used in operating activities was $21,253,344, $12,209,500, and $9,406,972 for the twelve months ended December 31, 2011, 2010 and 2009, respectively, and $91,487,498 for the period from June 5, 1996 (inception) to December 31, 2011. As of December 31, 2011 and 2010, Callisto had $13,244,961 and $1,708,982, respectively, of cash and cash equivalents.

During the twelve months ended December 31, 2011, 2010 and 2009, Callisto incurred net losses from operations of $20,928,591, $16,931,731, and $8,529,985 respectively and $125,276,409 for the period June 5, 1996 (inception) to December 31, 2011. To date, Callisto’s sources of cash have been primarily limited to sale of equity securities. Net cash provided by financing activities for the twelve months ended December 31, 2011, 2010 and 2009 was $32,789,323, $6,710,870 and $16,313,261respectively, and $104,822,742 for the period June 5, 1996 (inception) to December 31, 2011. As of December 31, 2011, Callisto had a working capital of $9,754,600, compared with a working capital deficit of $3,806,899 as of December 31, 2010.

Worldwide economic conditions and the equity and credit markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult for us to obtain additional equity or credit financing, when needed. Callisto has accordingly taken steps to conserve our cash which include extending payment terms to our vendors and suppliers as well as management and staff salary cuts and deferrals. These actions may not be sufficient to allow the Company time to raise additional capital.

These consolidated financial statements have been prepared under the assumption that Callisto will continue as a going concern for the next twelve months. Callisto’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Callisto will be required to raise additional capital within the next year to complete the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. Callisto cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that Callisto raises additional funds by issuing equity securities, Callisto’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact Callisto’s ability to conduct business. If Callisto is unable to raise additional capital when required or on acceptable terms, Callisto may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that Callisto would otherwise seek to develop or commercialize ourselves on unfavorable terms.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

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+ Details

CALLISTO PHARMACEUTICALS INC 10-K